Eurozone services activity rebounds despite continued lockdowns

Activity in the eurozone services sector returned to growth in April for the first time since last summer despite continuing restrictions to limit the spread of coronavirus, while factories reported a record expansion, according to a closely watched survey.

The IHS Markit eurozone flash purchasing managers’ index for services rose to 50.3 in April, from 49.6 in March. This is the first time in eight months that the reading has risen above the 50 mark, which indicates a majority of businesses reported an expansion in activity compared with the previous month. 

The result was stronger than the 49.1 forecast by economists polled by Reuters and indicated the eurozone economy made a relatively strong start to the second quarter.

The services sector accounts for almost three-quarters of eurozone private sector activity and businesses that depend on face-to-face contact with customers have borne the brunt of measures to contain Covid-19. However, the data suggest that the sector has become more resilient to lockdowns.

Chris Williamson, chief business economist at IHS Markit, said: “In a month during which virus containment measures were tightened in the face of further waves of infections, the eurozone economy showed encouraging strength.”

Meanwhile, the PMI for manufacturing rose to 63.3, its highest reading since records began in 1997, as “pent-up spending, restocking, investment in new machinery and growing optimism about the outlook have all helped fuel a further record surge in both output and new orders”, according to IHS Markit.

The composite PMI, an average of the two sectors, rose slightly to an eight-month high of 53.7, suggesting the eurozone private sector as a whole has returned to growth.

Jessica Hinds, economist at Capital Economics, said the composite reading was “somewhat of a surprise given the tightening of virus restrictions in parts of the region”.

“The survey has overstated the strength of activity in recent months, so we would not place too much weight on it,” she cautioned.

The eurozone economy is widely expected to record a double-dip recession when output data for the three months to March are published next week, after contracting 0.7 per cent quarter-on-quarter in the final three months of 2020.

But the pace of vaccinations has accelerated in many countries recently, fuelling economists’ hopes that curbs may be eased next month, a move that many expect to trigger a sharp rebound in activity in the second half of this year.

Activity in Germany’s export-focused manufacturing sector continues to grow rapidly but that was offset this month by unexpectedly slower services growth, which caused the country’s composite PMI to dip to a two-month low of 56, according to IHS Markit.

In contrast, French services activity outstripped expectations, boosting its composite PMI to a nine-month high of 51.7.

“The recovery in industrial production is currently being held back by supply bottlenecks for intermediate products, and services continue to suffer from the corona[virus] restrictions,” said Christoph Weil, economist at Commerzbank, who estimated that the eurozone economy shrank 1 per cent in the first quarter.

The flash PMIs are based on data collected between April 12 and 22 and published about 10 days before the final ones, using about 80 per cent of total survey responses.

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